Accounting: Tools for Business Decision Making

Chapter 17 Lecture notes i.Activity-Based Costing B. Better allocation of costs to proper users of overhead activities by focusing on activities. i Capture costs by individual activity. Activities and their costs are accumulated into activity cost pools. ii. Select a cost driver (allocation base) for each activity pool; use this cost driver to assign accumulated activity costs to cost objects (such as jobs or products) benefiting from the activity. See examples of cost pools and related cost drivers in Illustration 17-3, page 849 1. Terminology 1. Cost pool - individual activities, which are pooled in a logical manner into homogeneous groups. 2. Cost driver (or allocation base)  a factor that causes the cost of an activity cost to go up or down. Cost drivers are used to assign activity costs to cost objects. 1. Activity cost pool  temporary account that accumulates the costs a company incurs to support an identified set of activities. 2. Variable costs

This preview
has intentionally blurred sections.
Sign up to view the full version.